Incidents:

On October 25, the company released its report for the third quarter of 2024. Revenue for the third quarter was 0.942 billion yuan, up 44.01% year on year; net profit to mother was 0.141 billion yuan, up 106.45% year on year; non-net profit to mother was 0.124 billion yuan, up 165.86% year on year.

Continue to increase investment in R&D and maintain and expand technical advantages in various fields. According to the third quarter report, the company's R&D expenses for the current quarter were 0.152 billion yuan, an increase of 15.35% over the same period last year. According to the company's semi-annual report, in the first half of the year alone, the company applied for 23 invention patents and obtained 21 invention patent approvals. At the same time, the company has made progress and maintained industry leadership in many core technology fields, including: 1) ultra-low power high-performance SoC technology, 2) dual-band low-power Wi-Fi technology, 3) Bluetooth and Starflash technology, 4) advanced acoustic systems, 5) smart watch platform solution technology, 6) intelligent detection and health monitoring technology for wearable platforms, 7) fully integrated radio frequency technology under advanced technology, and 8) fully integrated audio and video storage high-speed interface technology. According to company reports and institutional research, we believe that the company has excellent operational and R&D capabilities, and continues to improve the company's competitiveness through continuous R&D investment, strong R&D team, rich R&D results, diversified revenue structure, and continuously improving gross profit margin. The company's chip products have been widely used in various terminal products for smart wearables and smart homes, and have become the main supplier of main control chips, and the brand influence is strong.

Increased demand in the smart wearables and smart home markets is driving the company's rapid revenue growth

According to the third quarter report, since the beginning of the year, demand in the company's downstream smart wearable and smart home market has continued to grow, driving the company's revenue to grow rapidly. Among them, the third quarter achieved revenue of 0.942 billion yuan, an increase of 44.01% over the previous year, setting a record high in revenue in a single quarter. According to the 2024 semi-annual report, global wearable shipments in the first quarter of 2024 were 0.11 billion units, an increase of 8.8% over the previous year. The domestic wearable device market shipped 33.67 million units, an increase of 36.2% over the previous year. Among them, the smartwatch market shipped 9.1 million units in the first quarter of 2024, up 54.1% year on year; the bracelet market shipped 3.7 million units in the first quarter of 2024, up 29.6% year on year. During the reporting period, the company's smartwatch/bracelet chip market share increased rapidly, and the next-generation wearable chip BES2800 was mass-produced and launched to meet market needs. Customers spread all over the world and in various industries, including mainstream Android phone brands, professional audio manufacturers, internet companies, and home appliance manufacturers. We believe that the company has competitive advantages and commercial barriers in terms of the depth and breadth of brand customers. In the future, the company can continue to maintain its leading edge and is expected to continue to benefit from industry trends such as AR glasses and AI headsets.

Investment advice:

We expect the company's revenue from 2024 to 2026 to be 3.373 billion yuan, 4.284 billion yuan, and 5.355 billion yuan, respectively, and net profit to mother 0.392 billion yuan, 0.584 billion yuan, and 0.806 billion yuan, respectively. Considering that the company is the core beneficiary of AI in smart wearable terminals, 55 times PE was given for 25 years, and the target price was 267.6, maintaining a “buy-A” investment rating.

Risk warning:

Industry demand falls short of expectations; new product development and introduction falls short of expectations; market competition intensifies.